After a dismal economic growth in the first quarter, India’s manufacturing activity expanded at a 13-month high in August, backed by surge in new orders and output, according to a private survey.
The Nikkei purchasing managers index for manufacturing rose to to 52.6 in August from July’s 51.8, eighth straight month of expansion indicating positive momentum in the production sector.
Prices softened, strengthening case of a rate cut by the Reserve Bank of India in the next policy meet on October 4 under the newly appointed governor Urjit Patel.
The 50-point mark separates expansion from contraction.
“Manufacturing PMI data show that the positive momentum seen at the beginning of the second semester has been carried over into August, with expansion rates for new work, buying levels and production accelerating further,” said Pollyanna De Lima, economist at survey compiler Markit.
The data comes a day after the official statistics showed that India’s gross domestic product grew at a five quarter low of 7.1 per cent in the first quarter and investments as indicated by gross fixed capital formation contracted three per cent.
However manufacturing sector in particular grew by nine per cent in the April-July period.
According to the PMI report based on survey of 500 private sector companies, new export orders expanded at the quickest rate in one year.
August saw a sharp upturn in new business inflows, which expanded at the fastest pace since December 2014.
Consumer goods producers led the increase, and strong growth was also seen in the intermediate and capital goods categories.
Subsequently, companies continued to raise output in August, with growth picking up to the strongest in one year.
Price pressure softened with raw material costs increasing at their weakest rate in six months and output prices barely rising at all, suggesting consumer inflation could cool in coming months.
“In light of these numbers, the Reserve Bank of India has scope to loosen monetary policy in the upcoming meeting to further support economic growth in India,” De Lima said.
The repo rate stands at 6.5 per cent.
Consumer inflation in India was 6.07 per cent in July, well above the RBI’s March 2017 medium-term target of fice per cent .